The Investigation of Relationship between Earnings Management and Corporate Financial Failure in Tehran Stock Exchange

Due to importance of financial status of corporate and accounts manipulations, we decided to investigate the relationship between corporate financial failure (bankruptcy) and earnings management that are amongst the main issues in companies grouping and accounts manipulations, respectively. Therefore, income smoothing as a part of earnings management was partitioned and relation each part of it separately was studied on three levels (net income, operation income and gross profit) to companies status. For this study, data was collected for 33 bankrupt companies (subject to article 141 of commerce law) and 33 non-bankrupt companies active in Tehran exchange in 1380-1387. The research hypothesizes have been tested using the chi-square, t-test and logistic regression. Hypotheses test results showed that there is a direct and fairly strong correlation between research variables in real income smoothing, and for artificial income smoothing no meaningful relation between research variables was noted.